Estate Planning Vault

Microcredit

Muhammad Yunus, founder of Grameen Bank and this year’s winner of the Nobel Peace Prize, pioneered the concept of microcredit. The idea behind microcredit is to loan small amounts of money to the impoverished without requiring collateral. Because borrowers become part of a group of five members and other members can’t borrow until the first borrowers begin repaying their loans (at 16% interest), “peer pressure substitutes for collateral.”

Averaging loans of $130, Grameen Bank has lent more than $5.7 billion and boasts a 98% repayment rate. “Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development,” said the Nobel committee.

Source: Los Angeles Times, 10-14-06